VRAJLAL CHANABHAI KACHHADIYA,JAMNAGAR vs. ITO, WARD-2(6), JAMNAGAR, JAMNAGAR

आयकर अपीलीय अिधकरण, राजकोट �यायपीठ, राजकोट । In The Income Tax Appellate Tribunal, “SMC” Rajkot Bench, Rajkot Before Dr. Arjun Lal Saini, Accountant Member आयकरअपीलसं/.ITA No. 847/RJT/2025 �नधा�रणवष�/ Assessment Year: 2010-11 Shri Vrajlal Chanabhai Kachhadiya, The Income Tax Officer, Raghuvir Society, Nr. Tarachand Ward-2(6), Jamnagar, Market, Janta Fatak, Opp. Fire Vs. Aayarkar Bhavan, P N Marg, Station, Jamnagar, Gujarat-361005 Jamnagar, Gujarat-361001

PAN No. ACPPP6115J (अपीलाथ�/Assessee) : (��यथ�/Respondent) �नधा�रतीक�ओरसे/Assessee by : Shri Mehul Ranpura, Ld. AR राज�वक�ओरसे/Revenue by : Shri Anadi Dixit, Ld. Sr. DR सुनवाईक�तार�ख/Date of Hearing : 18/06/2026 घोषणाक�तार�ख/Date of Pronouncement : 07/09/2026 ORDER Per, Dr. Arjun Lal Saini, AM:

The present appeal has been filed by the Assessee, against the order passed by the Learned Commissioner of Income Tax (Appeal), National Faceless Appeal, Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 30.09.2025 arising in the matter of assessment order passed u/s.143(3) r.w.s 147 of the Income Tax Act, 1961 dated 09.11.2017 relevant to the Assessment Year 2010-11. 2. Grounds of the appeal raised by the assessee are as follows: 1. The grounds mentioned hereunder are without prejudice to one another. 2. The Ld. CIT(A) erred in not deciding the ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, initiation of action u/s 147 of the Act is invalid and assessment made on such invalid initiation deserves to be quashed and may kindly be quashed.

ITA No.847/RJT/2025 (AY 2010-11) Shri Vrajlal Chanabhai Kachhadiya 3. The Ld. CIT(A) erred on facts as also in law in confirming action of AO in rejecting the set off of current year's loss of Rs. 28,78,674/- from brought forwarded loss of earlier years. The action of AO in denying set off of loss of Rs. 28,78,674/- is unjustified and uncalled for, which deserves to be quashed, may kindly be quashed. 4. The Ld. CIT(A) erred on facts as also in law in confirming action of AO in denying carried forward of loss of Rs. 2,47,93,136/-of AY 2009-10 referring the Note 28(4) of Section 10B of the Act on the alleged ground that the appellant's unit is 100 Export Oriented Unit and no carried forward or set-off of loss is permissible. The action of AO in denying carry forward of loss of Rs.2,47,93,136/- is unjustified and uncalled for, brought forwarded loss deserves to be allowed to carry forward, may kindly be allowed. 5. The Id. CIT(A) erred on facts as also in law in correlating Note 28(4) with Section 10B of the Act, though no such Note 28(4) mention the said section neither any citation from where such Note 28(4) is mentioned. Thus, action of AO and Ld. CIT(A) is unjustified and uncalled for, which deserves to be cancelled and quashed, may kindly be quashed. 6. Your Honour's appellant craves leave to add, to amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal. 3. Brief facts qua the issue are that in this case, return of income showing income of Rs. (-) 2,47,93,136/- was filed on 27/09/2009 and the assessment was finalized vide Order u/s. 143(3) was passed on 19/12/2011 determining total income at Rs. (-) 2,47,93,136/-. The assessment was reopened, after recording reasons, by issuing notice u/s 148 of the Act on 30/03/2017. In response to notice, the assessee, vide letter dt. 23/6/2017, submitted that the return of income filed on 13/10/2010 vide ack. no. 170234500131010 be treated as the return filed in response to notice. On verification of the details, it is seen that while filing the return of income for the assessment year 2009-10, assessee has claimed a loss of Rs. 2,47,93,136/-as current year loss to be carried forward to the A.Y. 2010-11 and subsequent assessment years. However, it is seen that assessee is a 100% Export Oriented Unit (EOU) engaged in the business of reprocessing of metal scrape into metal articles, sanitary etc. and that the income derived there from is exempt u/s.10B of the IT Act. Since the income is exempt u/s.10B of the I.T. Act, no loss is allowable to be carried forward for set off in the subsequent assessment year in view of the note 28(4) to the section 10B of the IT Act. It is a well settled

Page 2 of 9

ITA No.847/RJT/2025 (AY 2010-11) Shri Vrajlal Chanabhai Kachhadiya law that brought forward accumulated loss in respect of exempt income cannot be allowed to be set off against any taxable income of the subsequent assessment year. The assessee was requested to show cause as to why an amount of Rs. (-) 2,47,93,136/-, claimed as brought forward loss for the year under consideration, should not be disallowed in view of the note 28(4) to the section 10B of the I.T. Act. 4. In response to the show-cause notice, the assessee, filed a reply vide his letter dated 25/08/2017. The assessee has contended that the business is stopped since many years. The loss of Rs. 2,47,93,136/- as claimed in A.Y. 2009-10 has not been set off in subsequent years beginning from A.Y. 2010-11. However on verification of the details and documents viz. return of income for A.Y. 2010-11 it was seen that assessee has net business income of Rs. 28,78,674/- in the A.Y. 2010-11. The said income has been set off against the brought forward loss of Rs. (-) 2,47,93,136/-pertaining to A.Y. 2009-10. Since the income is exempt u/s.10B of the IT Act, no loss is allowable to be carried forward for set off in the subsequent assessment year in view of the note 28(4) to the section 10B of the I.T. Act. Therefore, it was held by the assessing officer that assessee has wrongly set off the income of Rs. 28,78,674/- against the loss of A.Y. 2009-10. The same was disallowed and added back to total income of assessee.

Page 3 of 9

ITA No.847/RJT/2025 (AY 2010-11) Shri Vrajlal Chanabhai Kachhadiya incurred a business loss of Rs. 2,47,93,136/-, which was assessed under section 143(3) of the Act and allowed to be carried forward for set off against the business income of the subsequent year, i.e., A.Y. 2010-11. In the subsequent assessment proceedings for A.Y. 2010-11, the Assessing Officer (AO) disallowed the set off of brought forward losses on the ground that the Appellant had claimed exemption under section 10B of the Act in the previous year and allegedly relied on a note (Note 28(4) under section 10B) to deny the carry forward of losses. The Appellant, in the appeal, contended that there was no restriction under section 10B or section 72 of the Act preventing the carry forward of losses and relied on CBDT Circular 7/2003. 2. Statutory Framework  Section 10B of the Act provides exemption in respect of profits and gains derived from export business carried out by a 100% EOU.  Section 10B(8) mandates that if an assessee intends not to claim exemption under section 10B, a declaration withdrawing the claim must be filed before the due date for filing the original return of income.  Section 72 permits carry forward and set off of business losses against business income of subsequent assessment years, subject to conditions laid down in the Act. The critical legal requirement is that the assessee must withdraw the section 10B exemption in a timely manner; failure to do so results in a statutory forfeiture of the right to carry forward losses. 3. Judicial Precedent The binding authority on this issue is the Supreme Court's decision in PCIT vs. Wipro Limited (2022). The Supreme Court held: 1. The filing of a declaration to withdraw the section 10B exemption is mandatory and time-bound. 2. The failure to file such a declaration before the due date for filing the original return results in forfeiture of the right to carry forward losses under section 72. 3. Filing a revised return after the due date cannot cure the failure to comply with this statutory requirement. 4. Consequently, any claim for carry forward or set off of losses in such circumstances is not legally sustainable. 5. The Supreme Court emphasized the strict and mandatory nature of the statutory procedure, reinforcing that compliance cannot be waived or remedied after the due date. 4. Analysis of the Present Case In the present case, it is observed from the record that:  The Appellant did not file any declaration withdrawing the section 10B exemption before the due date for filing the original return of income for AY 2009-10.  No statutory or procedural compliance for timely withdrawal has been demonstrated.

Page 4 of 9

ITA No.847/RJT/2025 (AY 2010-11) Shri Vrajlal Chanabhai Kachhadiya  The reassessment order under section 143(3) r.w.s. 147 of the Act correctly observed that, in the absence of such withdrawal, the exemption stood claimed and therefore the losses relating to that year cannot be carried forward. The Appellant's reliance on Circular 7/2003 or arguments regarding section 10B(6)(ii) or other provisions is inapplicable in the current factual context. The Circular discusses general principles regarding carry forward of losses for units that were EOU in earlier years; however, the Supreme Court has clarified that the mandatory withdrawal requirement under section 10B (8) of the Act overrides such considerations. Even if the carried forward loss was allowed in the previous year under section 143(3) of the Act, the failure to comply with the statutory withdrawal requirement renders the set off invalid for the subsequent year. The legal consequence is automatic forfeiture of the right to carry forward losses, which cannot be remedied or waived. 5. Assessment Officer's Action The AO disallowed the set off and carry forward of losses on the correct legal basis. The AO's action is consistent with the statutory mandate and Supreme Court ruling. There is no material on record to suggest that the AO acted arbitrarily or without authority. The rejection of the Appellant's claim of carry Forward is therefore fully justified in law. 6. Appellant's Submissions The Appellant contended that:  There is no restriction under section 10B or section 72 of the Act preventing carry forward of losses.  CBDT Circular 7/2003 supports carry forward.  The loss was allowed to be carried forward in A.Y. 2009-10 under section 143(3) of the Act. While these contentions may have been valid in a general context, they do not override the Supreme Court ruling in PCIT vs. Wipro Limited (2022). The key statutory requirement, timely withdrawal of section 10B exemption, was not complied with, which is a determinative factor in the matter. 7. Legal Position and Conclusion In view of the above discussion:  The statutory provision under section 10B(8) of the Act requires mandatory and timely withdrawal of exemption claims.  The failure of the Appellant to comply with this requirement results in forfeiture of the right to carry forward losses under section 72.  The AO's action in disallowing the set off and carry forward of losses is consistent with the law and binding Supreme Court precedent.  The appeal on this ground cannot succeed and is therefore dismissed. Observations:  This decision aligns with the strict statutory framework and the binding Supreme Court ruling.

Page 5 of 9

ITA No.847/RJT/2025 (AY 2010-11) Shri Vrajlal Chanabhai Kachhadiya  The principle is clear: even a previously allowed loss in an earlier assessment year cannot be carried forward if the assessee failed to file the withdrawal declaration on time.  Any subsequent reliance on circulars, internal notes, or section 10B(6) of the Act provisions cannot circumvent this statutory mandate. The claim for set off and carry forward of losses under section 10B is dismissed. The AO's disallowance is upheld. Issue 2: Deduction under Section 80C of the Act The Appellant had claimed a deduction of Rs 1,00,000/ under section 80C in the return of income. This claim is statutory in nature and is independent of the issue relating to section 10B. Since the deduction was correctly clamed and is admissible under the provisions of the Act, it is allowed. Issue 3: Levy of Interest under Section 234B of the Act The interest under section 234B of the Act arises only if there is tax payable on the assessed income. While the set off/carry forward of losses under section 10B of the Act cannot be allowed due to non-withdrawal, the interest computation may be examined independently. The AO's levy of interest under section 234B of the Act is therefore confirmed to the extent applicable on the tax payable after disallowance of losses. Conclusion 1. The appeal seeking set off or carry forward of losses under section 10B is dismissed in view of the failure to comply with the statutory requirement for timely withdrawal, as per the binding precedent of PCIT vs. Wipro Limited (2022). The AO's action on this ground is upheld. 2. The deduction of Rs. 1,00,000/- under section 80C of the Act is allowed. 3. Interest under section 234B of the Act shall be computed and confirmed in accordance with the tax payable after disallowance of the section 10B losses. The appeal is partly allowed to the extent of the section 80C deduction and dismissed on the ground of set off/carry forward of losses”.

Page 6 of 9

ITA No.847/RJT/2025 (AY 2010-11) Shri Vrajlal Chanabhai Kachhadiya of 4 years. The ld.Counsel for the assessee submitted that there is no failure on the part of the assessee to disclose truly and fully all material facts, during the original assessment proceedings. That is, the assessee submitted his reply before the assessing officer against the various notices issued during the original assessment proceedings, and thereafter the assessing officer framed the original assessment order, therefore, reopening of assessment after a period of four years, is bad in law and therefore should be quashed.

Page 7 of 9

ITA No.847/RJT/2025 (AY 2010-11) Shri Vrajlal Chanabhai Kachhadiya covered by the judgement of the Hon’ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd. 256 ITR 1, wherein it was held as follows: “CIT vs. Kelvinator of India Ltd. 256 ITR 1 the Full Bench of the Delhi High Court was considering a case of reopening u/s 147 within 4 years from the end of the assessment year. The Court held that when a regular order of assessment is passed in terms of section 143 (3) of the Act, a presumption can be raised that such an order has been passed on application of mind. It was held that if it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving premium to an authority exercising quasi-judicial function to take benefit of its own wrong. It was held that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceedings upon a mere change of opinion. On appeal by the department to the Supreme Court,(reported in 320 ITR 561(SC)) it was held that though the power to reopen under the amended s. 147 is much wider, one needs to give a schematic interpretation to the words “reason to believe” failing which s. 147 would give arbitrary powers to the AO to re- open assessments on the basis of “mere change of opinion”, which cannot be per se reason to re-open. One must also keep in mind the conceptual difference between power to review and power to re-assess. The AO has no power to review; he has the power to re-assess. But re- assessment has to be based on fulfillment of certain pre-condition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re- opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the AO. Hence, after 1.4.1989, the AO has power to re-open, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. 10. Reasons must have a live link with the formation of the belief. This is supported by Circular No.549 dated 31.10.1989 which clarified that the words “reason to believe” did not mean a change of opinion. The Hon’ble Supreme Court in ITO vs Lakhmani Mewal Das [1976 ]103 ITR 437 has lucidly explained the power of assessing officer to bring to tax income escaping assessment u/s.147 of the Act. The Hon’ble Court first held that the section provides that there must exist “reasons to believe“ and not “reasons to suspect”. The following were the relevant observations:

“The fact that the words "definite information" which were there in section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. The powers of the Income-tax Officer to reopen assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for

Page 8 of 9

ITA No.847/RJT/2025 (AY 2010-11) Shri Vrajlal Chanabhai Kachhadiya believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed.” The purpose behind the relevant provisions imposing condition precedent for initiating reassessment proceedings is to ensure finality of proceedings. The Act also provides that such reason must be recorded in writing before issue of notice of reassessment so as to judge the existence of such belief before initiating reassessment proceedings by issue of notice u/s.148 of the Act. The above requirements are meant to ensure that powers to initiate reassessment proceedings are not exercised in an arbitrary manner.”

Sd/- [ Dr. Arjun Lal Saini ] लेखा सद�य/Accountant Member //True Copy// राजकोट /Rajkot िदनांक/ Date: 07/09/2026 Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr. CIT 5. DR/AR, ITAT, Rajkot 6. Guard File By Order

Private Secretary ITAT, Rajkot

Page 9 of 9